Marketing-China and Getting it Right
By Mona Chung
China has become a synonym for future business growth. It is the business nirvana of the 21st century. It is the place to be. Companies are scrambling to get a share of the action. Not a day passes without some company making an announcement of an investment in their future which involves China.
Their reason for this scramble is the expectation of gaining vast increases in shareholder value. Reported performance would suggest that these expectations are difficult to realise. Anecdotal evidence would suggest that decreases in shareholder value rather than increases in shareholder value should be the expectation. Why is this? One reason for this is poor marketing performance. Comparing companies that have been successful with those that have not suggests that better preparation directed at understanding the market context, marketing operating requirements (this includes marketing management) and their surrounding culture would have seen fewer red faces at senior management level and less red ink at shareholder level.
There is not enough space here to discuss all the market context, marketing operations and cultural contexts impacting on performance in China in this article. However, a number of the more important considerations are discussed below.
Australians and Chinese share the same commercial values
The Chinese business environment in which marketing operations are embedded is the same as any Western business environment. Chinese business is there to make money. Chinese buyers are there to satisfy their needs. Chinese management is searching for profit and consumers are searching for value!
China is many markets
• Don’t miss the diversity
Assuming China is one market is, in many cases, a damaging assumption. China is a vast collection of many markets. Market differences within China are as great as those found across the countries of Europe. In China many cities are so large that market segments within them exist as economically viable units. This is somewhat different from Australia where the principal problem is finding, not segments, but economically viable segments. Competition is ferocious. The craziness of cities like Shanghai and Beijing is that a bottle of water may cost $0.50 to $15.00 depending on the level of competition and buyer affluence in complex, relationship based distribution networks.
This problem is compounded when working between cities. Differences between Beijing and consumers in Shenyang consumers are considerable. Consumption priorities, for instance food and clothing, show dramatic differences due to sub cultural influences and great differences in income levels.
• Market Research will be expensive
Because of the diversity research in one city does not guarantee success in another city. To deal with the diversity in China within the budget of most Australian companies’ requires highly targeted or cleverly stratified research. To test and understand the diversity and variability in China requires very large sample sizes. This is not the case in the Australian market were sample sizes of 500 suffice in most cases.
• Focus on realistic expectations
China has great potential but the streets are not paved with gold. In order to cope with this diversity for most Australian companies a one city entry strategy is obligatory. And for many a one segment entry strategy is obligatory.
Chinese are different and the same
• differences v. commonalities
The opposite of the above problem is seeing the diversity and missing the commonalities. Treating each Chinese person as different is as bad as treating them as the same. It is true that dealing and relating to Chinese from different areas requires some adaptation. However, care must be taken to ensure that this adaptation does not decline into a patronising sensitivity to assumed cultural differences between the Chinese.
• good results can’t be rushed
One distinct difference between Australian education system and Chinese education system is the process of data, analysis of data and the decision-making process. On the one hand the Australian educated manager is inclined to be confident and brash on the other hand the Chinese manager is inclined to be cautious and considered. You should not expect rapid acceptance of what appears to you to be an outstanding offer.
The value of your knowledge and experience change once they are in a different market
The belief that Australian companies know how to do it better has been a common attitude exhibited by expatriate managers. This hubris is often reinforced by the common Chinese approach to Australian managers. Chinese are educated to be modest towards other people especially towards “foreign guests”. Sensitivity to this politeness has often led Australian managers to believe that they are more advanced and more superior to their Chinese counterparts. Chinese management will politely say to Australian management that the Australian management system is more advanced than the Chinese system. It is unwise to accept that this as their true belief. This is simply politeness. The reality is that the Chinese have thousands of years of management experience working in some of the largest organisations the world has ever seen. In China, middle management can constitute control over thousands of employees compared to the tens or hundreds of employees controlled by middle management and Australian companies.
One interesting question arises when companies utilise an employee who has been educated in both systems. Do they get the best of both approaches? Unfortunately this is not guaranteed. As one senior executive of the largest Australian company operating in China stated:, “I employed four Chinese all of whom had MBA’s from Australia and they failed badly. They seem to have picked up the bad habits from both sides.” So what is the answer? The answer is your recruitment process. If you are recruiting human capital of a specific value, you must ensure your recruitment officer is capable of recognising this value.
China: the paradox
China is a paradox. You need to see on one hand the differences and on the other hand the commonalities among people in order to succeed. This is the difficulty in dealing with the Chinese market. Garry Titterton, the Asia-Pacific CEO of D’Arcy Masius Benton and Bowles articulated this paradox.
“The challenges facing multinationals are rigorous. China is more complex than Europe there is a huge ignorance of the complexity in China. China is a place we have to be very patient and you got to build overtime. You can’t go in and invest short-term and then pull out and then try to get back in again. It’s about being consistent, steady, building a reputation building confidence and then the rewards will come.”
The complexity he mentions relates to the diversity in the markets and referring to the time to penetrate markets he refers to the common cautious approach of the Chinese in their business relationships. Thus, diversity and commonality must be managed in China to be successful.
Mona Chung
March 21st, 2008 at 2:45 am
Mona,
you have some good points. While I may disagree that Chinese managers are effective because of their thousand year history I do agree that Chinese management practices, while perhaps seeming inefficient and backwards to foreigners, are much, much more efficient and useful in the Chinese business context. Of course, such management practices in a Western business culture would be just as disastrous as the “no nonsense” approach is here in China.
March 21st, 2008 at 4:04 pm
Best practices have no nationality and are not limited by race or geography. While cultural considerations MUST be included in any management strategy, the hubris shown here in demeaning western-style management practices is as outstanding as it is offensive. If western-style methods are in fact so inept, why are so many Chinese so eager to study at western business schools? And why have western-style practices succeeded in creating the current economic boom in China?
Managers from other countries are repeatedly implored by Chinese colleges, universities and businesses to teach their “advanced management practices” to Chinese companies and students. It’s not the manager’s fault if he or she trusts and believes this. Trust is the basis of any good relationship, including business relationships. If we are to take what is said here at face value, a responsible person must ask: Where does “being polite” stop and “being honest” begin?
Any business person must be concerned with facts. We have only to look at history. From the 1950’s until the mid-1990’s, China’s State Owned Enterprises operated with substantial losses due to poor fiscal practices. It was considered more important for people to have jobs than for the company to be profitable. This was in accord with modern (not traditional) Chinese philosophy where providing for the worker was considered paramount. The failures of this system were dramatic and pervasive. When economic growth took the focus in China during the 1990s, where did the government look for solutions? To Europe, Australia, and the US and our western-style management methods.
The so-called “thousand years practices” from traditional Chinese management relied on the feudal system, which has resurfaced in modern China. Feudal methods are unfair by definition. To claim otherwise is to ignore history. They depend not on a system or body of knowledge; rather, they depend on the character of the person. This is why the teachings of Lao Zi, Kong Zi (Confucius), and “The Five Books” were required reading for traditional scholars in pre-modern China; they stressed social responsibility, honesty, and development of good character. The need to develop “good character” is reflected in the resurgence of Confucianism in modern China today.
That China considers it acceptable for some people to “get rich first” is a common theme and has been actively promoted by China’s leadership. Unfortunately, this is also creating the resurgence of a modern feudal system of management. The difficulty with the feudal system is that many workers are treated badly and their health sacrificed in the name of profits.
It is a credit to the governance in western countries that workplace safety laws have been created to help protect workers. It is a credit to western-style management best-practices that employees are considered valuable assets.
Looking at management practices with any sort of slanted view creates distortion and results in problems.
Individuals may or may not effectively implement the best practices for a business, a region, or a market-sector. But to say that one country or another has a monopoly on what is “the best way” is totally inaccurate. What works well in South Carolina may not work at all in Ontario; what fails in Northern France may be just what is needed in Southern Ukraine; and what works perfectly in Hong Kong may fail miserably in Jiangsu.
Failing to consider the impact of management practices on the workforce will create failure for the business. Failing to consider the benefits of good management practices due to cultural bias or favoritism will also create failure for the business.
Western management methods are distilled from the best practices of many cultures and many people. Their success is not based on which culture or which country created them; their success is based on their effectivity in the marketplace.
March 26th, 2008 at 2:55 am
We have 2-year experience of change management deployment in China. I must admit that the pure western management style WILL NOT work in the local communities.
However, one should practise soft approach in the daily management responsibilities with the western mindset behind. Exceptions must be considered & tolerated. one plus one does not always equal two.
Building a strong rapport with the team is vital, thus high emphasis on communication, and open door interaction must be established.
Do tone-down your western KPI’s driven & my-way or the highway style of management.
April 2nd, 2008 at 12:12 pm
Interesting article and I would have to agree with Terri’s first point “best practices have no nationality….”.
Neither does profit. No matter the country of origin or of operation, businesses exist to make a profit. A good manager, no mater where they are from, MUST find the way to make their operation profitable within a reasonable period of time or they are not doing their job. Let me stress WITHIN A REASONABLE time.
Taking to long to ramp up and start to show potential if not actual profit will put the entire organization on the firing line.
Too many managers want to use “it’s China - it’s complex, it’s guanxi, it’s (fill in the blank)”as the reason why the operation lags behind the plan for revenue and profitability.
A manger who works in China. like one anywhere else, must find the keys to building a profitable organization and those keys will never be completely “Chinese” or “Western” or “American” or “Australian”. They will simply be good management skills for the time and the place.
PS I would beg to differ that China is more complex than Europe or anywhere else for that matter. Every market has complexities that are unique and the more of them you experience the more experience you have to help you meet the next challenge.
April 5th, 2008 at 3:28 pm
We should have no problem in creating arguements depends on what level we are looking at, micro or macro. In any case, western liberal education system is nothing but encouraging this type of debate.
I do teach in an Australian tertiary institute. I was one of those students who came from China many years ago. It was not the “best western management nor the education system” which attracted me in the first place.
An effective method is a method that works and produces results at the lowest cost (foundamental to managment theory).
Having worked, studied and lived half of my life in China and half in the west, I would not like to be drawn into any debate of calling neither being the best.
China is complex and unique. A perspective from the view of an outsider (a western business perspective) and insider (a chinese perspective) sometimes is not exatly the same. The more an outsider can understand the concept of ‘inside practice’ the more chance there is to success. That is the aim of the article.
This works both ways.
April 5th, 2008 at 5:05 pm
Muddling the point does help considerably to diffuse the core problem: that the original article was insulting. Perhaps you might have considered the point earlier? If you did not want to be involved in a debate of as you say “calling neither being the best” why did you start out by claiming ‘China is the greatest, the best and has done everything better and on a grander scale than everyone else in the world for thousands of years?’ The Italians, Greeks, and Egyptians might have a thing or two to say on this point.
To be successful, management methods need to be effective and address many issues, not merely cost. The “lowest cost” theory fails miserably in practice because it refuses to consider all the related issues.
I would not want the “lowest cost” pacemaker; I would want the best quality at a fair price.
Management practice (not management theory) requires considerably more than an overly simplistic cost comparison or promotion of cultural bias.
The US is unique. Sweden is unique. France is unique. Brasil is unique. Indonesia is unique. Japan is unique… and so is every other country and culture. The proposition that China is the only unique business environment is totally unfounded. It is a huge mistake to assume that “Western countries” are all the same and that only China is different. China has certain characteristics as a country - legal system, history, culture, language.
The core difference between _modern_ China and other modern countries is that from the 1940s until the mid-1980s, it was a closed society. Anyone who was not born there (and many of those who were) were strictly limited in the places they could go, the work they could do, and could be detained for getting off the train at “the wrong stop.” The opening, extremely rapid development, political changes, and size of the population have greatly influenced business and world markets. These are the truly unique aspects which should be considered by anyone who chooses to do business in China, not merely that Chinese culture is “special.”
The narrow view which pits “Chinese” against “other” is totally detrimental to any real discussion of management and/or marketing practices. If the same view were proposed in the US or the UK or Australia, it would be (and is) immediately rejected as racially biased.
Calling people “outsiders” because they are not of one race or another is completely unacceptable in most western countries, yet “lao wai” (outsider) is still used extensively in China and by many Chinese. This is insulting AND MANY PEOPLE in China have realized it. The more polite term “wai gou peng you” (friend from another country) is becoming more common. It still relies on an “us/them” mindset, but at least rejects the offensive insider/outsider mentality.
If I were to write the exact same statement calling any Chinese person in another country an outsider and lumping all western cultures into a single group of insiders, I would be the target of lawsuits and mail from all sorts of Chinese telling me how my comments were insulting to Chinese people and from other nationals calling me ignorant of their cultures. Please,… if you are going to claim that you have an understanding of western thought, at least make an effort apply some of it and to remove your racial bias from what you claim is your “market insight.”